Ok, who listened to President Obama's press conference last night discussing his first 100 days in office? If not, track down a transcript. First, despite the fact that the questions are scripted and it is not an open give and take forum, Obama is masterful at making one think it is an open and critical dialogue in which the best argument wins. His rhetoric appeals to anyone who finds reasonableness a virtue --- which should be anyone. Conservative pundits often point back to Reagan as the example of rhetorical master, but Reagan was a rhetorical master based on an ideological principle --- "Mr. Gorbachev Tear Down This Wall" or "Trust But Verify" when dealing with the "Evil Empire". Obama is a rhetorical master for the egg-head class. We want rigorous debate, we want all sides heard, we come at this with no ideological blinders on, but instead let good argument and evidence win the day. We listen hard, think even harder, and make up our minds based on reason and evidence. He uses this rhetoric so much, we believe it. Politics not by principle nor by interest, but politics as good conversation, where good is defined by the norms of academic debate in the ideal. It is as if the intellectual culture of the University of Chicago has come to Washington.

Second, Obama seems completely sincere in his proclamation that he has enough on his plate dealing with two wars, a health care crisis, the need to improve education, bring us energy independence, and deal with a potential pandemic to also want take over the economy. He told everyone last night that he would have loved nothing more than to have come into office and not had to deal with the economic crisis, but had he not dealt with it as he did, we would have faced the collapse of the entire financial system. Government had to take over the banks and had to take over the auto-industry. But his goal, he assured us, is to return the banks and the automobile companies to the private sector as quickly as possible. Again, the rhetoric is reasonable, but also stresses the sense of urgency and responsibility with which the actions were taken. Perhaps the debate couldn't go on much longer because the need for action was immediate. So even a reasonable person will cut off discussion and move to act based on the best information available to him. If he didn't act as he has these first 100 days, to the best of his knowledge we would be in a much worse situation than we are with respect to the economy. So perhaps the University of Chicago culture cannot quite make it to Washington --- at least the arguments of Chicago economists such as Cochrane or Zingales or Mulligan or Murphy or Becker.

Third, this does raise a broader issue about the relationship between ideological blinders and pragmatic politics --- either of the interest group or debate club variety. When I was writing my book The Political Economy of Soviet Socialism: The Formative Years, 1918-1928, I framed my contribution as bringing the economic way of thinking into a dispute among historians on whether the excesses of the War Communism period (1918-1921) were due to ideology or expediency, and whether the instability of NEP was due to the internal logic of interventionism or opportunism on the part of Stalin. The historical narrative I presented was one in which an ideology confronts a refactory reality. The tragedy of the Soviet Union was indeed due to an ideology, but we only come to know the "tragedy" of it because of the logic of economics that points out that this particular ideology cannot possible achieve what it sets out to achieve in this reality. The tragedy is instead the unintended and undesirable consequence of policy steps. But to the leaders who acted in 1917 and 1918, and in 1921, and again in 1928 (and along the way) their decisions were filtered through the ideological lens of Marxism. There was revolutionary sincerity on the part of Lenin, Trotsky, Bukharin, Stalin, etc. There was opportunistic politics as well, but those opportunities presented themselves precisely because the sincere belief system failed to achieve its goals and thus failure required explanation and action. In short, ideology frames what is considered expedient. And expedience is what is considered "reasonable" in a time of crisis.

I think our current policy path proves this interaction thesis once again. The economists who have been studying our financial mess closest to those in power are sincere when they argue that had we not acted policy wise the way we have we would have faced financial ruin as a country (and perhaps world-wide). They sincerely believe the steps taken then and now are the only reasonable steps to deal with the crisis. But what if they are wrong? They are wrong, the argument goes, because their analytical frame of reference (the set of eyeglasses they are wearing to "read" the crisis) is wrong. So rather than fixing the crisis, they in fact are creating the crisis. Is this debate taking place vigorously inside the Obama White House?

Finally, how sincere does one believe the claim that the US government wants to return the banking system and the auto-industry to the private sector as quickly as possible really is?

Whatever doubts one might have, one must admit that to egg-heads the professorial style that Obama adopts and the ease with which he speaks to us is pretty effective that he is a man of "reason" and not ideological emotions run amock all the while his administration is engaged in a series of hyperactive ideological moves to transform the US economy. Obama is masterful in his rhetoric, but the consequences will be devastating in reality if the mainline of economic thinking (from Adam Smith to F. A. Hayek and Milton Friedman) is the more accurate portrayal of reality. The most ambitous ideological dreams do run afoul of a refractory reality.

Through a rather strange set of circumstances, I ended up reading this blog post by Bryan Caplan from 2005 on how getting a PhD in economics is a good deal. I think my brilliant colleague makes a lot of sense in this post.

One of our readers asked about the "privatize" the department remark. This was in fact a remark attributable to Walter Williams and Walter's goal was to insulate the department as much as possible from the inefficiencies of public university life as possible. Clearly, he could not eliminate the inefficiencies, but he could try to minimize them and that is what he did as the chairman of the economics department at GMU.

I once asked Peter Berger what the secret was to a long and distinguished career as a scholar. He said bluntly, look the modern university is a dysfunctional workplace, the best you can do is try to insulate yourself from the craziness with your own research center and with private donors. And Berger taught for much of his career (though not exclusively) at private universities, not large public universities.

The best diagnosis of the dysfunctions of large public universities can be found in James M. Buchanan's Academia in Anarchy (Basic Books, 1970). Unfortunately, this is the one book left out of Buchanan's Collected Works.

The basic analysis is straightforward --- if the customers don't pay, the managers do not have control, the workers get to manage, etc., etc., don't be surprised when the organization is screwed up. Williams's remark (and governing strategy) was meant to shift the incentives that one confronts in the modern public university, and to align those incentives in a way that would reward individuals for quality teaching and relevant research.

This photo captures Tony Carilli in his umpire mode and Dan Palumbo (one of my Honors 131 students) in his 3rd baseman mode. GMU won the game convincingly, Dan played great, and Tony only blew 1 call :).

If you walk around GMU campus these days, you will see similar signs announcing that US News & World Report named GMU the #1 univeristy to watch. After the Final 4 appearance, GMU invested in a giant electronic board on Braddock Rd, right outside of the campus to alert passers-by of events on the campus at the Center for the Arts or at the Patriot Center, or proudly announcing such distinctions bestowed by US News & World Report.

GMU is the largest university in the state of Virginia I believe, and the campus is currently building an amazing number of new dorms, a conference center, and new academic buildings.

For a relatively young university (still under 50 years of age), to have been able to distinguish itself in the realms of research in the natural sciences, social sciences andl law, work in the humanities, in particularly literature, the arts, and athletics is something very unique. Back in the 1980s, GMU was often referred to as an "upstart" university, but at the time there was barely 10,000 students all but roughly 1,000 commuted, athletic accomplishments were mainly in women's soccer and track and field, and James Buchanan was putting the school on the map with his Nobel Prize, Henry Manne was building the law school basically from scratch, and Robinson Professors such as Carlos Fuentes were bringing attention to GMU as potential Nobel Prize winners in literature.

Today we have well over 30,000 students, Vernon Smith won another Nobel Prize in economics, the Law School is one of the best in the world for law and economics, the basketball program is highlighted on EA Sports games and plays on ESPN and consistently posts 20+ wins per season and draws close to 7,000 to home games on average (this year the team was undefeated at home, lost in the finals of the CAA tournament to a very strong VCU team, and lost in the NIT to Penn State in overtime -- Penn State was the eventual champions), our baseball team is among the top 25 teams in the country, swimming team has Olympic level performers, Track and Field has Olympic level athletes, women's lacrosse is among the best, etc., etc. In short, GMU is a world-class institution in the US style of academia (which includes not just pure academics, but also cultural events, athletic events, living arrangements, etc.).

When George Johnson became President of GMU, he announced that he wanted to make GMU the Stanford of the East Coast. We obviously aren't there yet, but who would have believed the progress that was made across the board at this school since 1980? It is an amazing achievement in academic entrepreneurship.

Loren Lomasky is visiting GMU this week. Over dinner he asked me and a group of graduate students the following question. "Who besides people at GMU, and who are not market-oriented in the economics profession are doing good work?" The way Loren framed the question it meant we were dealing with guys like Stiglitz, Summers, etc. Loren also pushed the behavioral line of research. But the students responded by pointing to Vernon Smith's Nobel address, and other criticisms of the behavioral critique.

Loren was not impressed and kept pushing the students and me to think more broadly. And, in fact, said at one point that if he thought the literature in his discipline was so fundamentally misguided he would stop being a philosopher.

At this point, I realized there was a fundamental failure of communication going on. But I couldn't get my point across, though I did hint at it. First, in Loren's own discipline he is an analytic philosopher, but there is also a continental approach to philosophy. Analytic philosophers in general are not very impressed with the work (old or new) done by continental philosophers. If the profession in general was continental in orientation, then Loren might have the same assessment of philosophy that Austrian economists have of their discipline. Second, if we move beyond the issue of Austrian economics within the current intellectual landscape of the economics profession and instead just concentrate on the idea of the basic teachings of economics, then there is another issue which I believe Loren was missing --- namely, the difference (in Lakatosian terms) between the hard core and the protective belt. One can be intellectually open and engaged in a progressive research program, and not be focused on self-criticism inside of the hard core. Instead, the act of criticism and innovative trial and error is all directed at questions at the edge of the protective belt. Loren kept asking questions which were inside the hard core of the economic way of thinking, so his disappointment at lack of critical engagement with the graduate students may very well have been a false expectation of how economists debate progress in their discipline.

Finally, Loren artificially rigged the discourse? Work by political economists such as Acemoglu, Johnson, Robinson, Besley, Shleifer, Glaeser, etc. were ruled out of court. Moreover, Greif, Benson, and others on self-ordering was ruled out of court. We didn't talk about John List on natural experiments, nor Esther Duflo on radomized experiments in policy evaluation, nor Michael Kremer on push versus pull in scientific funding, nor Roland Fryer on incentives in educational policy. Some of these weren't thought of because of the way Loren posed the problem (focusing not on interesting work, but on interesting work that argues for positive role of government in economic life), others weren't thought of because they actually are market-oriented contributions to economics.

Still Lomasky's challenge is worth contemplating? Who is indeed doing the most interesting work outside of our intellectual comfort zone?

“One would be forgiven for concluding that the assumed benefits of financial
innovation are not all they were cracked up to be,” the Fed chairman said...
“The damage from this turn in the credit cycle -- in terms of lost wealth, lost
homes, and blemished credit histories -- is likely to be long-lasting.” ...

What is the best way to discuss this from an Austrian perspective? How would one sort out among the wealth enhancing financial innovations of the past quarter century from the superfluous entrepreneurial discoveries that were set in motion by various government regulations and interventions into the financial service industry?

In the comments on another thread, Arare asked me to list what I see as my top 3 publications and offer some reasons why, with the goal being a way to guide folks to what work of mine they should look at first. I think that's a great idea and I'd challenge my co-bloggers to do the same when they have a minute. So here's my list, which is actually five, and in no particular order. I have also not included books, just articles. I invite our well-read commentariat to tell me I'm full of crap.

1.“The Costs of Inflation Revisited,” Review of
Austrian Economics, 16 (1), March 2003, pp. 77-95. Of all my macro/money stuff, this is the most well-developed part of the argument. I also like this paper because it starts with core Austrian insights and supplements it with important ideas from NIE and Public Choice. You can get the podcast version from FEE here.

4. “Monetary Calculation and the Unintended Extended Order: The
Misesian Microfoundations of the Hayekian Great Society,” Review
of Austrian Economics, 17 (4), December 2004, pp. 307-21. Since Arare's question was raised in the discussion of Pete's Mises Institute post, this article is relevant in two ways. This was my SDAE presidential address and my attempt to respond to the "dehomogenization" arguments of Salerno and others. Presidential addresses are a good place to lay out a broad vision, and I tried here to make a statement about what I think Austrian economics is all about and why it's the economics of both Mises and Hayek. I wish this article would get more attention than it has.

5.“The Functions of the Family in the Great Society,” Cambridge
Journal of Economics, 29 (5), September 2005, pp. 669-84. My recent foray into the economics and social theory of the family really begins here, with an attempt to lay out a Hayekian understanding of the role of the family in the Great Society/extended order. This paper, like the others, feels like a "complete statement" in a way that I'm very happy with, as well as being an original contribution to the literature on Hayek. (For the Austrian economics take on the family, see my paper with Peter Lewin here. That one gets honorable mention: “Heterogeneous
Human Capital, Uncertainty, and the Structure of Plans: A Market Process
Approach to Marriage and Divorce” (with Peter Lewin), Review of Austrian Economics, 21 (1), March 2008, pp. 1-21.)